Oil prices fell by about 0.5%, continuing yesterday's decline. Pressure on prices is exerted by the strengthening of the US currency, as well as concerns about a decrease in demand for petroleum products from China. At the same time, increased expectations of easing the Fed's monetary policy limited the fall in prices.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.17% to 104.37. A stronger dollar makes oil more expensive for buyers holding other currencies.
As for China, recent weak economic data has tempered market optimism about the prospects for oil demand. Yesterday, the National Bureau of Statistics (NBS) said that China's GDP grew by 4.7% per year in the second quarter (the lowest value since the first quarter of 2023) after growing by 5.3% in the first quarter. Economists had expected the economy to expand by 5.1%. On a seasonally adjusted quarterly basis, GDP rose 0.7% - also missing forecasts for 1.1% and slowing sharply from 1.6% in the first quarter.
Meanwhile, yesterday's statements by Fed Chairman Powell increased the likelihood of a rate cut in the near term. Powell said that the three U.S. inflation readings over the second quarter "add somewhat to confidence" that the pace of price increases is returning to the Fed's target in a sustainable fashion. According to the CME FedWatch Tool, markets see a 8.8% probability of a 25 basis point rate cut at the Fed meeting in July, a 100% probability of a rate cut in September, and a 100% probability of monetary policy easing in November. Lower interest rates decrease the cost of borrowing, which can boost economic activity and oil demand.